US exchange operator Direct Edge expects to lodge a formal application to launch an equity trading venue in Brazil in the coming weeks, but admits its success will depend on clearing interoperability.

William O’Brien, CEO at
Direct Edge, told theTRADEnews.com that the launch of a competitor to domestic stock
exchange BM&F Bovespa would form the core of his firm’s strategy this year.

“Brazil is where our big
push for diversification will come this year and we are very close to filing an
application with [Brazilian securities regulator] Comissão de Valores
Mobiliários,” he said. “We want to take advantage of the growth of investment
into Brazil and the thirst for competition in this market.”

In November 2011 Direct Edge
announced plans to launch a Brazilian exchange in Rio.

But given the cost and
complexity associated with building separate post-trade services in the country,
the launch of the new platform will depend on the willingness of BM&F
Bovespa to let Direct Edge use the domestic clearing house that the incumbent exchange
owns.

Shortly after Direct Edge
announced its Brazil plans, BM&F Bovespa CEO Edemir Pinto indicated he would
be unwilling to open up the clearing house to third-parties.

A June 2012 study
commissioned by CVM and conducted by Oxera concluded equity trading competition
in Brazil would likely benefit end-investors, but only if the primary exchange
allowed competing venues to use its clearing house.

According to O’Brien, Direct
Edge’s application offers a viable framework for open access to clearing.

“We want to bring the
benefits of competition to Brazil in a way that doesn’t increase operational or
systemic risk,” said O’Brien. “The only way to do this is to use the existing
clearing infrastructure, a point we will make in our application.”